Europe's economy is heading into the final months of the year riding its hottest pace of growth since 2011, according to private data published Thursday, with job creation and price increases supporting the region's recovery and potentially altering the European Central Bank's policy outlook over the medium-term.
IHS Markit's benchmark Composite PMI reading of economic activity around the currency area rose to 57.5 this month, well ahead of the 56.0 reading recorded in October and the fastest pace of growth since April 2011. Readings in France and Germany, the regions two biggest economies, were also well ahead of expectations and translate into a fourth-quarter GDP growth rate of 0.8%, the best in a decade.
"Jobs are being created at the fastest rate since the dot-com boom, yet despite this increase in operating capacity firms are struggling to meet demand," said IHS Markit's chief economist Chris Williamson. "Backlogs of uncompleted work are growing at the fastest rate for over a decade, often resulting in a sellers' market as customers struggle to source goods and services. Prices are consequently rising at an increased rate."
The euro was marked 0.15% higher against the U.S. dollar at 1.1843 following the release, although much of the currency's recent gains are linked to the greenback's sharp overnight decline that followed a dovish assessment of U.S. inflation by the Federal Reserve in minutes of its last policy meeting, which were published late Wednesday.
Tame inflation remains the benchmark for ECB policy changes, as well, even after the Bank said last month that it would halve the pace of its monthly asset purchases to €30 billion ($35.5 billion) as it extends its quantitative easing program in an effort to hold interest rates lower and stoke consumer price rises in the single currency area close to its 'just below 2%" target.
Earlier this week, ECB President Mario Draghi told lawmakers on the Economic and Monetary Affairs Committee of the European Parliament that solid economic growth hasn't translated into faster wage advances.
"Despite the firm economic recovery, inflation dynamics have yet to show convincing signs of a self-sustained upward trend. Headline inflation was 1.4% in October and is expected to temporarily decline towards the turn of the year, mainly owing to a weaker energy component as a result of base effects," Draghi said. "Underlying inflation pressures are still subdued as labour market slack remains significant. The improvements in labour markets that we have observed still need time to translate into more dynamic wage growth."
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